Question

Use the information from Exercise 15. Wasabi Corp. is currently selling 30,000 units per year and has a 35% tax rate.
Required:
(a) What is Wasabi Corp.’s current annual income after taxes?
(b) Management believes that increasing advertising costs by $150,000 will increase unit sales by 20 percent. What will be Wasabi Corp.’s new annual income if this change is made? Should the company make the change?
(c) Management believes that increasing the quality of the material used in the production process will increase the attractiveness of the product to purchasers. The higher-quality material will cost an additional $3 per unit. Wasabi’s marketing department believes that using this material will not allow an increase in unit selling price, but by spending $45,000 on advertising to inform the public of the higher quality, sales volume should increase by 5 percent. What will be Wasabi Corp.’s new annual income if this change is made? Should the company make the change?